FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-23908
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
CALIFORNIA 33-0531301
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
3158 REDHILL AVENUE, SUITE 120, COSTA MESA, CA 92626
(714) 662-5565
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1997 and
December 31, 1996.........................................................3
Statement of Operations
For the three months and nine months ended September 30, 1997 and 1996....4
Statement of Partners' Equity
For the nine months ended September 30, 1997 and 1996.....................5
Statement of Cash Flows
For the nine months ended September 30, 1997 and 1996.....................6
Notes to Financial Statements..............................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................14
Signatures ................................................................15
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1997 and December 31, 1996
1997 1996
---- ----
ASSETS
Cash and cash equivalents $ 1,423,217 $ 1,498,036
Investment in limited
partnerships (Note 2) 10,632,386 11,447,928
Other assets 1,612 5,419
----------- -----------
$ 12,057,215 $ 12,951,383
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Payable to limited partnerships
(Note 3) $ 16,836 $ 16,836
Accrued fees and expenses due to
general partner and affiliates
(Note 4) 323,370 233,380
----------- ------------
340,206 250,216
----------- ------------
Partners' equity (deficit):
General partner (61,961) (52,119)
Limited partners (30,000 units
authorized, 18,000 units issued
and outstanding) 11,778,970 12,753,286
----------- -----------
Total partners' equity 11,717,009 12,701,167
----------- -----------
$ 12,057,215 $ 12,951,383
=========== ===========
UNAUDITED
See Accompanying Notes to Financial Statements
3
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30, 1997 and 1996
1997 1996
---- ----
Three Nine Three Nine
Months Months Months Months
------ ------ ------ ------
Interest income $ 10,997 $ 35,549 $ 19,054 $ 56,814
-------- -------- -------- --------
Operating expenses:
Amortization 14,649 43,947 14,554 43,286
Asset management fees (Note 4) 46,544 139,627 46,605 139,819
Legal and accounting - 6,588 - 6,867
Other 1,168 10,545 940 10,385
--------- -------- -------- --------
Total operating expenses 62,361 200,707 62,099 200,357
--------- -------- -------- --------
Loss from operations (51,364) (165,158) (43,045) (143,543)
Equity in loss from
limited partnerships (265,000) (819,000) (262,000) (787,000)
--------- -------- -------- --------
Net loss $ (316,364) $ (984,158) $(305,045) $ (930,543)
========= ======== ======== ========
Net loss allocated to:
General partner $ (3,164) $ (9,842) $ (3,050) $ (9,305)
========= ======== ======== ========
Limited partners $ (313,200) $ (974,316) $(301,995) $ (921,238)
========= ======== ======== ========
Net loss per 18,000 weighted
limited partner interest
outstanding $ (17) $ (54) $ (17) $ (51)
========= ======== ======== ========
UNAUDITED
See Accompanying Notes to Financial Statements
4
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY
For the Nine Months Ended September 30, 1997 and 1996
For the Nine Months Ended September 30, 1997
General Limited
Partner Partner Total
------- ------- -----
Equity (deficit), December 31, 1996 $ (52,119) $ 12,753,286 $ 12,701,167
Net loss for the nine months ended
September 30, 1997 (9,842) (974,316) (984,158)
-------- ----------- -----------
Equity (deficit), September 30, 1997 $ (61,961) $ 11,778,970 $ 11,717,009
======== =========== ===========
For the Nine Months Ended September 30, 1996
General Limited
Partner Partner Total
------- ------- -----
Equity (deficit), December 31, 1995 $ (38,553) $ 14,096,223 $ 14,057,670
Less offering costs (180) (17,820) (18,000)
Net loss for the nine months ended
September 30, 1996 (9,305) (921,238) (930,543)
------- ----------- -----------
Equity (deficit), September 30, 1996 $ (48,038) $ 13,157,165 $ 13,109,127
======= =========== ===========
UNAUDITED
See Accompanying Notes to Financial Statements
5
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
1997 1996
---- ----
Cash flows used in operating activities:
Net loss $ (984,158) $ (930,543)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in loss of limited partnerships 819,000 787,000
Amortization of acquisition costs and fees 43,947 43,286
Decrease (increase) in other assets 3,807 (4,539)
Increase (decrease) in asset management fee 89,628 (60,179)
Increase (decrease) accrued fees and
expense due to general partner and affiliates 362 (722)
-------- --------
Net cash used in operating activities (27,414) (165,697)
-------- --------
Cash flows used in investing activities:
Investment in limited partnerships (55,994) (220,734)
Acquisition costs and fees (33,906)
Distribution from limited partnerships 8,589 6,377
Net cash used in investing activities (47,405) (248,263)
-------- --------
Cash flows used in financing activities:
Offering costs (18,000)
--------
Net cash used in financing activities (18,000)
--------
Net decrease in cash and cash equivalents (74,819) (431,960)
Cash and cash equivalents, beginning of period 1,498,036 1,916,200
--------- ---------
Cash and cash equivalent, end of period $ 1,423,217 $ 1,484,240
========= =========
UNAUDITED
See Accompanying Notes to Financial Statements
6
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS (CONTINUED)
For the Nine months ended September 30, 1997 and 1996
Supplemental disclosure of non-cash investing activity:
During the nine months ended September 30, 1996, the Partnership's Payables to
Limited Partnerships (in connection with its investments in limited
partnerships) decreased by $396,176. This decrease was due to various price
adjuster provisions in the respective limited partnership agreements.
UNAUDITED
See Accompanying Notes to Financial Statements
7
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NOTE 1 - GENERAL AND ORGANIZATION
- ---------------------------------
General
- -------
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual financial statements;
accordingly, the financial statements included herein should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the Partnership's Annual Report for the year ended December 31, 1996.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1997 and the results of operations and changes in cash flows for the three
months then ended. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the interim period presented are not necessarily indicative of the results for
the entire year.
Organization
- ------------
WNC California Housing Tax Credits III, L.P. (the "Partnership") was formed
under the California Revised Limited Partnership Act on October 5, 1992 and
commenced operations on July 20, 1993. The Partnership was formed to invest
primarily in other limited partnerships which will own and operate multi-family
housing complexes that will qualify for low income housing credits.
The general partner is WNC California Tax Credit Partners III, L.P. (the
"General Partner"), a California limited partnership. WNC & Associates, Inc. is
the general partner of the General Partner. The Cooper Revocable Trust owns 70%
of the outstanding stock of WNC & Associates, Inc. John B. Lester, Jr. is the
original limited partner of the Partnership and, through the Lester Family
Trust, owns 30% of the outstanding stock of WNC & Associates, Inc.
The General Partner has a 1% interest in operating profits and losses, taxable
income and loss and in cash available for distribution from the Partnership. The
limited partners will be allocated the remaining 99% of these items in
proportion to their respective investments.
8
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
NOTE 1 - GENERAL AND ORGANIZATION (CONTINUED)
- ---------------------------------------------
Method of Accounting For Investment in Limited Partnerships
- -----------------------------------------------------------
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of each limited partnership's results of operations and
for any distributions received. Costs incurred by the Partnership in acquiring
the investments in limited partnerships are capitalized as part of the
investment.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all bank certificates of deposit with a maturity of
less than three months to be cash equivalents.
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
- -------------------------------------------
At September 30, 1997, the Partnership had acquired limited partnership
interests in eighteen limited partnerships which own and operate eighteen
apartment complexes. All eighteen of these have completed construction as of
September 30, 1997.
The Partnership, as a limited partner, is a 99% owner and is entitled to 99% of
the operating profits and losses of the limited partnerships. Following is a
summary of the components of the Partnership's investment in limited
partnerships as of September 30, 1997 and December 31, 1996:
1997 1996
---- ----
Investment balance,
beginning of period $ 11,447,928 $ 13,032,752
Increase in investment 55,994
Adjustments to invested amount
due to changes in tax credits (422,205)
Equity in loss of limited
partnership (819,000) (1,132,216)
Distributions (8,589)
(6,376)
Capitalized acquisition cost & fees 33,906
Amortization of capitalized
acquisition costs (43,947) (57,933)
---------- ----------
Investment balance,
end of period $ 10,632,386 $ 11,447,928
========== ==========
9
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIP (CONTINUED)
- ------------------------------------------------------
Selected operating information from the financial statements of the eighteen
limited partnerships for the period ended September 30, 1997 and 1996 is
presented below:
1997 1996
---- ----
Total revenue $ 2,089,000 $ 1,967,000
---------- ----------
Interest expense 708,000 720,000
Depreciation 955,000 911,000
Operating expenses 1,266,000 1,131,000
---------- ----------
Total expenses 2,929,000 2,762,000
---------- ----------
Net loss $ (840,000) $ (795,000)
========== ==========
Net loss allocable to
the Partnership $ (832,000) $ (787,000)
========== ==========
Net loss recognizable by
the Partnership $ (819,000) $ (787,000)
========== ==========
NOTE 3 - PAYABLE TO LIMITED PARTNERSHIPS
- ----------------------------------------
Payable to limited partnerships at September 30, 1997 represents amounts which
are due at various times based on conditions specified in the respective local
limited partnership agreements. These contributions are payable in installments,
generally due upon the local limited partnership achieving certain operating
benchmarks, and are generally expected to be paid within two years of the
Partnership's initial investment.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Under the terms of its Agreement of Limited Partnership, the Partnership is
obligated to the General Partner or its affiliates for an annual management fee
equal to .5% of the invested assets (defined as the Partnership's capital
contributions plus its allocable percentage of the permanent financing) of the
limited partnerships. Fees of $139,627 and $139,819 were incurred for the nine
months ended September 30, 1997 and 1996.
The "accrued fees and expenses due to general partner and affiliates" presented
on the balance sheets consists of the following:
September 30, 1997 December 31, 1996
------------------ -----------------
Asset managment fee payable $ 322,996 $ 233,369
Working capital advances due
to an affiliate 374 11
------- -------
$ 323,370 $ 233,380
======= =======
NOTE 5 - INCOME TAXES
- ---------------------
The Partnership will not make a provision for income taxes since all items of
taxable income and loss will be allocated to the partners for inclusion in their
respective income tax returns.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The Partnership raised funds from investors through its public offering of units
of limited partnership interest ("Units") and intends to apply such funds,
including the installment payments of the limited partners' promissory notes as
received, to the acquisition of investments in partnerships, acquisition fees,
the establishment of reserves, the payment of operating expenses and the payment
of expenses of this offering.
As of September 30, 1997, the Partnership has received subscriptions for 18,000
Units consisting of cash of $18,000,000 and discounts of $400,950 for purchases
of 100 units or more. The offering terminated on July 22, 1995 at which time
subscriptions for 18,000 units were accepted.
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary source of capital is the proceeds from its offering.
Overall, as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash equivalents of approximately $75,000 and $432,000 for
the nine months ended September 30, 1997 and 1996. In 1997, this decrease in
cash consisted of cash used by the Partnership's operating activities and
investing activities. Investing activities used a net of approximately $47,000
consisting of uses of cash for purchases of interests in limited partnerships
and acquisition fees of approximately $56,000 and cash provided of approximately
$9,000 from distributions from limited partnerships. Cash used in the
Partnership's operating activities was minimal compared to the Partnership's
other activities and consisted primarily of payments for operating fees and
expenses. Cash provided from operations consisted primarily of interest
In 1996, this decrease in cash was consisted of cash used by the Partnership's
operating activities, investing activities and financing activities. Investing
activities used a net of approximately $248,000 consisting of uses of cash for
purchases of interests in limited partnerships and acquisition fees of
approximately $254,000 and cash provided of approximately $6,000 from
distributions from limited partnerships. Financing activities used $18,000 which
consisted of offering costs. Operating activities used cash of approximately
$166,000 which consisted substantially of the payment of asset management fee of
$200,000. Cash provided from operations consisted primarily of interest The
major components of all these activities are discussed in greater detail below.
As of September 30, 1997 the Partnership had received $18,000,000 in cash from
the sale of Units. Approximately $12,592,000 has been committed to the purchase
price of eighteen limited partnership interests. As of September 30, 1997, the
Partnership had made capital contributions to its limited partnerships in the
amount of approximately $12,576,000.
It is not expected that any of the local limited partnerships in which the
Partnership will invest will generate cash from operations sufficient to provide
distributions to the limited partners in any significant amount. Such cash from
operations, if any, would first be used to meet operating expenses of the
Partnership, including the payment of the asset management fee to the General
Partner.
The Partnership's investments will not be readily marketable and may be affected
by adverse general economic conditions which, in turn, could substantially
increase the risk of operating losses for the apartment complexes, the local
limited partnerships and the Partnership. These problems may result from a
number of factors, many of which cannot be controlled by the General Partner.
Nevertheless, the General Partner anticipates that capital raised from the sale
of the Units will be sufficient to fund the Partnership's future investment
commitments and proposed operations.
11
<PAGE>
The Partnership has established working capital reserves of at least 3% of
capital contributions, an amount which is anticipated to be sufficient to
satisfy general working capital and administrative expense requirements of the
Partnership including payment of the asset management fee as well as expenses
attendant to the preparation of tax returns and reports to the limited partners
and other investor servicing obligations of the Partnership. Liquidity would,
however, be adversely affected by unanticipated or greater than anticipated
operating costs. The Partnership's liquidity could also be affected by defaults
or delays in payment of the promissory notes, from which a portion of the
working capital reserves is expected to be funded. To the extent that working
capital reserves are insufficient to satisfy the cash requirements of the
Partnership, it is anticipated that additional funds would be sought through
bank loans or other institutional financing. The General Partner may also apply
any cash distributions received from the local limited partnerships for such
purposes or to replenish or increase working capital reserves.
Under its partnership agreement the Partnership does not have the ability to
assess its partners for additional capital contributions to provide capital if
needed by the Partnership or local limited partnerships. Accordingly, if
circumstances arise that cause the local limited partnerships to require capital
in addition to that contributed by the Partnership and any equity of the local
general partners, the only sources from which such capital needs will be able to
be satisfied (other than the limited reserves available at the Partnership
level) will be (i) third-party debt financing (which may not be available, if,
as expected, the apartment complexes owned by the local limited partnerships are
already substantially leveraged), (ii) additional equity contributions or
advances of the local general partners, (iii) other equity sources (which could
adversely affect the Partnership's interest in tax credits, cash flow and/or
proceeds of sale or refinancing of the apartment complexes and result in adverse
tax consequences to the limited partners), or (iv) the sale or disposition of
the apartment complexes (which could have the same adverse effects as discussed
in (iii) above).
There can be no assurance that funds from any of such sources would be readily
available in sufficient amounts to fund the capital requirements of the local
limited partnerships in question. If such funds are not available, the local
limited partnerships would risk foreclosure on their apartment complexes if they
were unable to re-negotiate the terms of their first mortgages and any other
debt secured by the apartment complexes to the extent the capital requirements
of the local limited partnerships relate to such debt.
The Partnership's capital needs and resources are expected to undergo major
changes during the first several years of its term as a result of the completion
of its offering of Units and its acquisition of investments. Thereafter, the
Partnership's capital needs and resources are expected to be relatively stable
over the holding periods of the investments.
Results of Operations
- ---------------------
As of September 30, 1997 the Partnership has identified and acquired eighteen
limited partnership interests. Each of the eighteen apartment complexes owned by
such limited partnerships received government assistance and each of them has
received a reservation for federal low income housing credits. All eighteen of
these have completed construction of its apartment complex as of September 30,
1997 and had operations for the period.
Consistent with the Partnership's investment objectives, each limited
partnership is generating or is expected to generate federal low income housing
credits for a period of approximately ten years, commencing with completion of
construction or rehabilitation of its apartment complex(es), and (as discussed
below) is generating or is expected to generate losses until sale of the
apartment complex(es).
As reflected on its Statements of Operations, the Partnership has losses of
approximately $984,000 and $931,000 for the nine months ended September 30, 1997
and 1996, respectively. The component items of revenue and expense are discussed
below.
12
<PAGE>
Revenue - Partnership revenues consisted of interest earned on investor
promissory note and on cash deposits held in financial institutions (i) as
reserves, or (ii) pending investment in local limited partnerships and increase
in investment in local limited partnerships. Interest revenue in future years
will be a function of prevailing interest rates and the amount of cash balances.
It is anticipated that the Partnership will maintain cash reserves in an amount
not materially in excess of the minimum amount required by its partnership
agreement, which is 3% of capital contributions.
Expenses - The most significant component of operating expenses is, and is
expected to be, the asset management fee (called "Partnership management fee" in
the Statements of Operations). The asset management fee is equal to 0.5% of
invested assets in local limited partnerships; accordingly, the amount to be
incurred in the future is a function of the level of such invested assets (i.e.,
the sum of the Partnership's capital contributions to the local limited
partnerships plus the Partnership's share of the debts related to the apartment
complexes owned by such local limited partnerships).
Amortization expense consists of the amortization over a period of 30 years of
the 9% selection fee and other expenses attributable to the acquisition of local
limited partnership interests.
Office expenses and legal and accounting consists of the Partnership's
administrative expenses, such as accounting and legal fees, bank charges and
investor reporting expenses.
The Partnership's equity in losses from limited partnerships is equal to 99% of
the aggregate net loss of the limited partnerships. After rent-up, the limited
partnerships are expected to generate losses during each year of operations;
this is so because, although rental income is expected to exceed cash operating
expenses, depreciation and amortization deductions claimed by the limited
partnerships are expected to exceed net rental income.
13
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
1. None..
No reports on Form 8-K were filed during the third quarter ended
September 30, 1997.
14
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
By: WNC California Tax Credit Partners III General Partner
By: WNC & Associates, Inc. General Partner
By: /s/ John B. Lester, Jr.
- -----------------------------------------------------
John B. Lester, Jr. President
Date: November 7, 1997
By: /s/ Theodore M. Paul
- -----------------------------------------------------
Theodore M. Paul Vice President-Finance
Date: November 7, 1997
15
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<NAME> WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,423,217
<SECURITIES> 0
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0
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<OTHER-EXPENSES> 819,000
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